Drug Merger Sends Dow Index Up 19 as Interest Rates Climb : Markets: The yield on the three-month Treasury bill tops the 4% level, the highest rate since 1992.
News of a drug industry megamerger on Monday contributed to a rally in stocks led by economically sensitive cyclical shares and pharmaceutical issues.
Meanwhile, short-term interest rates rose to their highest level in more than two years, with the yield on the three-month Treasury bill topping the psychologically important 4% level.
Long-term interest rates also rose, pushing bond prices lower, as upbeat economic news fanned fears of another Federal Reserve interest rate hike.
The dollar rose against the Japanese yen, but tumbled against the German mark.
The Dow Jones industrial average rose 19.33 points to 3,701.02. Rising issues outnumbering declines by about 9 to 7 on the New York Stock Exchange, with more than 297.13 million shares changing hands.
Wall Street’s advance was sparked by a bid to take over Palo-Alto Syntex Corp. for $5.3 billion.
Roche Holding AG, based in Basel, Switzerland, agreed to pay $24 a share for Syntex, a maker of treatments for arthritis and skin diseases. Syntex surged 8 1/4 to 23 1/2 and was the most active stock in U.S. composite trading.
Although health care stocks led the way, technology and other issues most sensitive to the economic cycles followed closely behind. Many of the day’s best performers were from the smaller-company Nasdaq composite index, which rose 6.84 to 740.68.
In the bond market, the key 30-year bond yield rose to 7.33% from Friday’s 7.30%, while its price was down 9/32 point, or $2.81 per $1,000 in face value. Prices and yields move in opposite directions.
Meanwhile, Treasury sold $11.4 billion of three-month bills at an average discount rate of 4.00%, up from 3.85% last week. Another $11.5 billion of new six-month bills was sold at an average discount rate of 4.41%, up from 4.25%.
The three-month bill rate was the highest since they sold for 4.08% on March 30, 1992. The six-month bill rate was the highest since they averaged 4.5% on Nov. 25, 1991.
On the economic front, the National Assn. of Purchasing Management said its April index rose to 57.7% from the previous month’s reading of 56.7% and higher than the 56.3% reading economists had expected.
And the widely watched price component of the index showed prices did not rise as rapidly in April as in the previous month.
“There was some reassurance from the report that price pressures are under control,” said Michael Metz, investment strategist with Oppenheimer & Co.
At the same time, the Commerce Department reported that construction spending rose a modest 0.8% in March, after declining during an unusually stormy winter.
Concern about inflation has driven down both bond and stock prices in recent weeks and pushed the Federal Reserve to nudge short-term interest rates higher three times this year.
Strong economic growth brings the threat of inflation, which erodes the value of fixed-income securities such as treasuries.
And stocks often look to bonds for direction because the higher interest rates that come with falling Treasury bond prices make shares less attractive and increase the cost of money to corporations.
In currency trading, the dollar slid as stocks and bonds weakened in morning trading on the purchasing managers’ report. But as stocks and bonds recovered later in the day, the dollar didn’t necessarily rebound.
The dollar closed in New York at 101.65 Japanese yen, up from Friday’s 101.50 yen. The U.S. currency was at 1.649 German marks, down from 1.6535 on Friday. That’s the lowest point for the dollar vs. the mark in New York since a 1.6395 rate on Oct. 20.
Among the market highlights:
* Cyclical stocks helped the Dow’s rise. Alcoa added 3 to 70 1/2, DuPont rose 1 3/8 to 58 1/2, and General Motors gained 1/2 to 57 1/4.
* Eastman Kodak, another Dow component, shot up 3 to 44 1/2 on rumors that the company may announce it will sell all or portions of its Sterling Winthrop pharmaceutical unit. Kodak said it would make a significant announcement this morning.
* Drug stocks surged as takeover speculation ran through the group. Eli Lilly rose 2 1/8 to 51 3/8, Schering-Plough gained 3 5/8 to 64, Upjohn added 1 3/4 to 28 1/2 and Dow component Merck advanced 1 1/2 to 31 1/8.
* Technology stocks and computer networkers were also strong. Cisco Systems rose 2-3/16 to 32 1/2, Wellfleet Communications gained 3 3/4 to 77 5/8 and Chipcom ended up 2 3/8 to 49 1/4.
* Casino operator Caesars World tumbled 4 7/8 to 43 3/4. It said its third-quarter earnings would fall below a year ago.
Overseas markets were mixed. Mexico’s Bolsa index fell 63.37 points to 2,230.73 as investors continued to sell shares in response to last week’s rash of poor corporate earnings reports, traders said.
In Europe, Frankfurt’s DAX 30-share average ended at 2,268.65, up 22.67 points. The London stock exchange was closed for a market holiday. Tokyo’s 225-share Nikkei average slid 155.04 points to 19,570.21.
In other markets:
Oil futures prices rose moderately, led by news of an emergency at a North Sea platform that halted production. Light sweet crude oil for delivery in June settled at $17.16 per barrel, up 26 cents, in light trading on the New York Merc.
Gold fell on the New York Comex to $376.20 an ounce, down 40 cents. Silver fetched $5.298, down from $5.338 Friday.
Market Roundup, D8
